Before the advent of the Web, commercial life in Japan was dominated by big business, traditional relationships and entrenched distribution patterns. Combined with a lack of venture capital, it meant competitors could be locked out of new markets and the high price of entry used to exclude smaller players.
The rigid, hierarchical structures of Japanese corporations have slowed the decision-making process and led to many decisions that were poorer than they might have been.
E-mail alone threatens to change all this, while the Internet as a whole levels the playing field and reduces the cost of market entry for foreign companies.
The Net is poised for a major leap forward in Japan. A study for the Ministry of International Trade & Industry by Andersen Consulting predicts the value of e-commerce transactions to both business and consumers will surge from – 8.7 trillion (&£50bn) in 1998 to – 71.2 trillion (&£412bn) in 2003.
Andersen claims business-to-consumer e-commerce in Japan is four to five years behind the US – a gap that will close to three years by 2003. Although Japan will continue to trail the US by a wide margin, growth, especially in consumer e-commerce, will be more than enough to create entrepreneurial opportunities and reshape a number of traditional industries.
Key to the surge in Net use in Japan will be the growth in new ways to surf the Web.
When the family demands new meal ideas, the Japanese need look no further than the Sharp Internet Microwave Oven. With its accompanying data box, you can download recipes from Sharp’s Website and automatically program the oven to cook a meal once the ingredients have been mixed together.
If microwaves do not heat up the Net market, mobile telephones surely will. Docomo, Japan’s leading mobile operator, and IDO and DDI – its main rivals – offer mobile data services covering everything from online shopping to electronic investing.
Small screens and keyboards are not a problem for Japan’s mobile users, who use their time on the move to send e-mails and check train timetables.
Docomo believes that in the next two to three years almost 30 per cent of the predicted 70 million mobile users in Japan will use data communication services.
When the last phone call of the day has been made and the time has come to relax with a videogame, Japanese computer addicts can use Dreamcast electronic consoles to trade stocks online, thanks to a venture by Sega Enterprises and Nomura Securities.
Sega claims there are about 1.4 million Dreamcast videogames console users in Japan – 420,000 of which are already able to access the Net using the console. They can access Nomura’s “Home trade” service by upgrading their browsers using giga disk read-only memories (GD-Roms) supplied by the broker.
Sega has forged an alliance with Toyota which enables car dealers to sell Dreamcast consoles with special access to the car maker’s Website.
It is planning another online service with the Japan Racing Association to allow Dreamcast users to place bets using the games console.
But today’s emerging e-business patterns are a misleading guide to what to expect by 2003. Andersen says that last year Japan’s consumer e-commerce was dominated by computer, peripherals and software sales. By 2003, these will have been overtaken by travel and vehicle sales. “Travel products are, by nature, information sensitive, and by 2003 their potential should begin to manifest itself. For automobiles, more consumers will begin negotiating with dealers and making purchases from terminals at home, and in convenience stores,” Andersen says.
It says that by 2003 consumers will able to browse car makers’ online catalogues or do questionnaires so they can receive recommendations. Test drives will be arranged on the Web, which will naturally allow payments to be made electronically. Similarly, used-car buyers will register their needs and sit back and await e-mail advice.
People will book airline tickets on the Net using a PC or mobile. Tour operators will sell holiday packages through online catalogues. And commuters will be able buy travel passes online.
Multipurpose identity cards will contain data so that travellers will need only to walk through scanners at train stations or present an identity card at airport check-in desks.
Business-to-business e-commerce is relatively more developed in Japan, where it is only a year behind the US. In both countries, extra-Nets are already being used to link large manufacturers with suppliers, especially in the electronics, IT and automobile industries. The transactions are similar to the normal procurement of equipment, parts and office supplies, with the Net superseding faxes, phone calls and post.
For some companies, it goes without saying that the Net is the future of business. Fujitsu sees its future as inextricably linked. Having bought Nissho Iwai’s stake in Nifty-serve – a Compuserve lookalike online service – Fujitsu will next month merge it with Infoweb and relaunch the package as @nifty – an Internet service provider (ISP) with an initial 3.5 million subscribers and 35 per cent market share.
According to Tatsuzumi Furukawa, president of Fujitsu’s Network Services Group, this is only the beginning. There are plans for a cybercity, with an expected 10 million inhabitants by 2004.
New content will attract cybercitizens to @nifty, with tie-ups for Net banking and brokerage services. Meanwhile, business-to-business services are an important part of Furukawa’s plans. As Japan’s leading systems integrator, Fujitsu has a web of corporate connections that will allow businesses to conduct an increasing range of transactions online.
Fujitsu’s lead is impressive, but these are early days and there is still a lot to play for.
Furukawa sees Sony as Fujitsu’s greatest rival. Sony launched its own ISP, So-net, in January 1996 as a joint venture between the Sony Corporation, Sony Music Entertainment and the Sony Finance Corporation. It now ranks fourth with about 620,000 subscribers and, according to Nihon Keizai Shimbun, second in terms of active users.
By March, there should be more than 1 million So-net users. “We see it as a new entertainment medium, and we’ll be developing it with entertainment content,” Yukinao Kondo, director of the Sony Communication Network Corporation, says. For Sony Music, the Web will be a new distribution channel.
“Initially, new Net users are interested in e-mail and communication services,” Kondo says. “Then they become interested in content and, as they gain still more experience, Net shopping.”
Sony has signed up more than 220 shops for Smash – its online shopping service. But Kondo says: “There are conflicts with traditional distribution channels that need to be resolved.” With traditional distribution systems being a major reason for the paucity of Net shopping in Japan, Smash’s outlets are mainly small speciality retailers: small companies lacking national distribution channels, innovative shops, and retailers with unique products looking to reach a wider audience.
Japan may lag behind, but it is not following pedantically in the footsteps of the US. Hotaka Katahira, professor of marketing science at Tokyo University, says. “Japanese traditions, language, culture and familiarity with a graphic rather than text-based world will give the Net world in Japan a character of its own as the market develops.”
The growth in Net use has many implications for marketing. “New companies can more readily offer niche products and services but, for most existing companies, the key will be to understand that, as well as a direct sales, the long-term power of the Net will be consumer information and relationship marketing. Own the best customer database and you own the market,” says Chris Beaumont, vice-chairman of McCann-Erickson in Tokyo.
Trailing the leaders is not necessarily a disadvantage – witness Japan’s success in consumer electronics from the Eighties onwards. So could Japan come from behind again and be one of the first countries to rebuild its economy through the Net? It is too soon to tell, but what is certain is that the e-changes afoot will create a host of new business opportunities.